The System: Eric Levitz

When supply, not demand, is the problem the economy is changing. Liberalism must change with it.

- By Eric Levitz

The 2008 financial crash ripped a giant hole in the incomes and wealth of Americans, limiting their ability to afford everything from big-ticket purchases like cars to their rent. The government declined to fill that hole in deference to a superstitious fear of deficits. This kept many millions of U.S. workers on the economy’s sidelines and myriad industrial facilities underutilized. For years, America’s capacity to produce goods and services exceeded consumers’ ability to pay for them.

This was a tragic state of affairs for the U.S. economy but, in some respects, a convenient one for American liberalism. Since the days of LBJ’s Great Society, liberals’ reform ambitions have largely focused on demand-side policy. The Affordable Care Act effectively gives Americans more money to spend on medical services through insurance subsidies. Food stamps give low-income households more money to spend on groceries. Social Security increases seniors’ disposable income.

In a demand-constrained economy, these kinds of policies are free lunches: Since there is spare productive potential, putting cash in people’s pockets not only benefits them directly but also aids the broader economy, as higher consumer spending encourages growth.

Relatedly, in an economy with relatively low inflation—like America’s from 2009 through 2020—the government need not offset new spending with taxes in order to keep prices from shooting through the roof. And that too was very convenient for liberals, who are perennially tasked with reconciling their movement’s expansive vision for the welfare state with Americans’ aversion to higher tax rates.